This is the most frequent word you may hear or read when purchasing an insurance policy. The
premium is the cost of obtaining the insurance cover that you choose. I.e. How much you pay
for your insurance. This is the amount of money that is then considered as the income by your
insurer. The premium can be paid in installments during the term or period of the policy, or paid
as a lump sum. If you fail to pay your premium in due time, your insurance policy will be
cancelled.

This is the minimum insurance level that covers the legal requirement in Sri Lanka. A third party
insurance cover only pays for damages to other people and their property caused by you, and is
usually the cheapest policy available. This third party could be another car, the driver, members
of the public or public property.

It does not compensate you, or the damages to your own vehicle in any way. Neither does it
cover any damage incurred due to natural disasters. This policy premium costs around 1000 -
1500 LKR.

Third Party Fire & Theft Insurance:

This policy, in addition to the third party coverage above, also protects you against theft and fire
damage. The premium is decided by each insurer, thereby ranging from 2500 - 10000 LKR.
Depending on the insurance provider this insurance may compensate you for any damage that
is cause as a result of attempted theft.

Comprehensive Insurance:

This policy covers you against impact damage and fire damage to the vehicle, third party liability
and of course loss of your vehicle. Basically this is the policy that covers damage to your vehicle
caused by a crash, and is therefore the most marketed policy type.

With this policy, you can pay an additional premium charge to cover yourself from other
disasters such as floods and natural perils, riots, strikes and civil commotion, terrorism,
workmen’s compensation insurance (WCI), personal accident benefit (PAB) to driver and
passengers, towing cover, windscreen cover, etc. When they say comprehensive, they mean
comprehensive.

There is really no exact formula that is followed, but many insurers use this rough guideline--
First thing’s first, they figure out the Basic Rate. This is roughly about 2.25% of the value of your
car. Then, if you are lucky, you can deduct your No Claims Bonus, or any other special rebate
that is given by the insurer (always at the insurance company’s discretion). Next, you add
premiums for Flood & Natural Peril, which is around 10% of the basic premium, leasing cover (if
relevant, 25% of the basic premium), and premiums for any other covers (such as Workmen’s
Compensation, Personal Accident Benefit, Windscreen Covers etc.). You would also add a
premium for Riots Strikes & Civil Commotion (0.2%) and Terrorism Cover (0.05%), as well as a
Policy Fee (Rs. 200), Admin Fee (0.03%), VAT (15% of the total, including premiums), and a
Nation Building Fee (0.3%).

Insurance companies encourage safe-driving, and also reward drivers who make no claims
against other incidents such as theft, fire or any other damage. This bonus can start from 15%
off your basic premium in the first year, and can go upto a whopping 75%!

What better incentive to make you drive better than knowing that someone will reward you for
doing it?

Some interesting facts about the No Claim Bonus :

It can be freezed for a period of 2 years. This mainly comes into effect when a
policyholder either leaves the country or doesn’t drive an own vehicle during the two
years.

If in the case a policyholder decides to permanently/temporarily move to another country
and procure an insurance policy in that country, the same No Claim Bonus can be taken
into consideration.

The No Claim Bonus can also benefit owners when they are upgrading to a vehicle of a
greater monetary value. For an example if the consumer has maintained the policy for 3
years with no claims, and purchases a new vehicle of a higher value, the corresponding
premium on the No Claim Bonus they receive would be much higher due to the higher
value of the vehicle.

The deductible is the amount or percentage that you must incur in the event of a claim. Basically
this is the excess amount that gets deducted from any claim you make, because you agree to
pay it yourself. The higher the excess, the lower the premium.

Here’s a tip - if you’re considering making a small/negligible claim, think back on your
deductible, and how much you will actually claim, and compare if it’s simply better off paying for
any repairs yourself instead of losing out on your no claim bonus.

There are two types of deductibles:

Voluntary excess:

This is when the deductible or excess amount is decided by the client, where you agree to
voluntarily bear a certain amount from each claim (mostly ranging from 2000 - 10000 LKR) for
which you receive a special rebate on the premium. Don’t be unrealistic in setting this excess
amount!

Compulsory excess:

This is when the deductible or excess amount is decided by the insurer.

Based on a policy condition

Based on high claims ratio (at renewal)

Based on any other risk factor eg: Age of vehicle/ Classic car / Rare model

Since compulsory excess isn’t in your control, here is a simple example to ensure that you are
fully aware about the concept.

An insurance policy procured for a vehicle older than 10 years would have a compulsory
excess due to many reasons. One such reason being the unrealistic price of spare parts
created due to the unavailability of the spare parts of that specific model in the local market.

Do not make the mistake of thinking the easiest way out is buying the cheapest cover! If you’ve
busted your savings to buy a car, then be smart and invest in insuring it. The cheapest cover
would make sense if your car is of low value, but wouldn’t you rather make sure you area
covered against all disasters that could and have hit Sri Lanka?

Not knowing your vehicle

For most people, a vehicle is perhaps the second most expensive purchase after a house. This
is a commitment you are making for at least a few years. So get in there and get to know your
vehicle better! You can save yourself from making the wrong insurance decisions.

Not reading the entire policy

Take some time, sit down in a quiet corner, and read through the entire policy before you sign it.
If you are not too comfortable with the insurance lingo (if you’ve read this far through our FAQ,
you will be a pro already!), get someone who’s in the know to translate it to you. It will save you
from realizing that you have agreed to unreasonable exclusions and / or excess payments.

Agreeing to an unreasonable deductible

If you read the cover from start to end as we mentioned before, you wouldn’t find yourself in this
situation. This is the Compulsory Excess that the insurer can impose on you. Get a good idea
of why they are asking for that specific amount, or go for a Voluntary Excess.

Undervaluing the vehicle

Don’t try to be a smart monkey and undervalue your vehicle. Not only are you putting yourself in
danger, it’s also unethical practice. Think about the worst case scenario where you meet with an
accident. You may lose your claim completely, and face a penalty or worse yet, legal action! (?)

Underestimate value added services

From 24/7 spot assistance to key and lock replacement covers, you are entitled to a wide
variety of value added services as a policyholder. All policies do not offer all value added
services, so be sure to check with your insurer before you commit!

Monkey see, monkey do

Yes, there are still a bunch of people among us who would do something because someone
else said so. Your friend got a sweet deal for his motor policy? Your spouse hit the jackpot with
their cover? Your dad still swears by his insurance agent of 20 years? Good for them. But this
doesn’t in anyway mean that it’s good for you or your car. So make use of the technology
available today, and the information that you have at your fingertips!